FDD: Alluring 6.5% Yield But Dismal Performance From This U.K.-Heavy ETF

seekingalpha07-06

FDD aggregates 30 high-yield European stocks that were screened for dividend growth and dividend coverage.The UK, the Netherlands, and Germany are the key countries represented. Financial sector ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2449723278?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1296511910/image_1296511910.jpg","is_english":true,"pubTime":"2024-07-06 16:04","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2449723278","market":"us","top_or_hot":-1,"title":"FDD: Alluring 6.5% Yield But Dismal Performance From This U.K.-Heavy ETF","media":"seekingalpha","content":"<div>\n<p>FDD aggregates 30 high-yield European stocks that were screened for dividend growth and dividend coverage.The UK, the Netherlands, and Germany are the key countries represented. Financial sector ...</p>\n\n<a href=\"https://seekingalpha.com/article/4702687-fdd-alluring-6-5-percent-yield-but-dismal-performance-from-this-uk-heavy-etf\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>FDD: Alluring 6.5% Yield But Dismal Performance From This U.K.-Heavy ETF</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nFDD: Alluring 6.5% Yield But Dismal Performance From This U.K.-Heavy ETF\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-07-06 16:04 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4702687-fdd-alluring-6-5-percent-yield-but-dismal-performance-from-this-uk-heavy-etf><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>FDD aggregates 30 high-yield European stocks that were screened for dividend growth and dividend coverage.The UK, the Netherlands, and Germany are the key countries represented. Financial sector ...</p>\n\n<a href=\"https://seekingalpha.com/article/4702687-fdd-alluring-6-5-percent-yield-but-dismal-performance-from-this-uk-heavy-etf\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"FDN","symbol_name":"First Trust Dow Jones Internet I","start_time":0,"source_url":"https://seekingalpha.com/article/4702687-fdd-alluring-6-5-percent-yield-but-dismal-performance-from-this-uk-heavy-etf","article_id":"2449723278","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1296511910/image_1296511910.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2449723278","pubTimestamp":1720253057,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"FDD aggregates 30 high-yield European stocks that were screened for dividend growth and dividend coverage.The UK, the Netherlands, and Germany are the key countries represented. Financial sector stock","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"FDN":"First Trust Dow Jones Internet I","BK4207":"综合性银行","LU2236285917.USD":"ALLIANZ GLOBAL INCOME \"AMG\" (USD) INC","ING":"荷兰国际","BK4581":"高盛持仓","BK4504":"桥水持仓","BK4550":"红杉资本持仓","BK4582":"ESG ETF-MSCI","IEV":"欧洲ETF-iShares","HSBC":"汇丰","BK4521":"英国银行股","IVV":"标普500指数ETF","EFA":"欧澳远东指数 ETF-iShares MSCI","BK4585":"ETF&股票定投概念","OEUR":"ALPS O'Shares Europe Quality Dividend ETF","BK4534":"瑞士信贷持仓","NWG":"NatWest Group","EUDG":"WisdomTree Europe Quality Dividend Growth Fund","FDD":"First Trust Stoxx European Select Dividend Index Fund","BK4588":"碎股"},"translate_title":"FDD：这只以英国为主的ETF的6.5%收益率诱人，但表现惨淡","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"FDN":1,"US30Y.BOND":1,"US2Y.BOND":1,"US12M.BOND":1,"US10Y.BOND":1,"OEUR":1,"NWG":1,"US3Y.BOND":1,"IVV":1,"ING":1,"IEV":1,"HSBC":1,"FDD":1,"EUDG":1,"EFA":1,"US5Y.BOND":1,"US6M.BOND":1,"US7Y.BOND":1,"US912797HE00.BOND":0.6,"US912797GB79.BOND":0.6,"US912797GK78.BOND":0.6,"US912797GL51.BOND":0.6,"US912797GW17.BOND":0.6},"content_text":"FDD aggregates 30 high-yield European stocks that were screened for dividend growth and dividend coverage.The UK, the Netherlands, and Germany are the key countries represented. Financial sector stocks account for 54.2%. There is no exposure to IT, consumer staples, health care, or real estate.FDD's strategy has delivered dismal returns in the past, with a negative annualized return over September 2007–June 2024.A 6.5% trailing twelve months dividend yield is alluring, but a Buy rating is illogical assuming drab past performance.   filmfoto Continuing my series of articles dissecting international equity exchange-traded funds, today I would like to initiate coverage of the First Trust STOXX® European Select Dividend Index Fund ETF (NYSEARCA:FDD). In essence, FDD is a passively managed investment vehicle that amalgamates value as well as dividend growth and dividend quality factors in a portfolio of European stocks (not limited to the EU or the euro area). Value is measured using the dividend yield, with top-yielding names occupying the key spots. The essential thing to understand about FDD is that this is a vehicle that offers a yield, which is clearly hard to resist, even in a high-interest rate environment, but its performance is a textbook example of a value- or yield-trap situation. That is to say, while its 6.5% trailing twelve months dividend yield is solid, total returns (which include dividends) over the long term are utterly dismal, so it is worth avoiding the ETF. The expense ratio of 59 bps is another reason. FDD investment strategy basics According to FDD's website, the ETF is based on the STOXX® Europe Select Dividend 30 Index. The idea of this benchmark is to aggregate 30 high-yield names from 18 European countries. The summary prospectus offers a glimpse into the constituent selection process. First, its components are selected from the STOXX Europe 600 Index. Non-dividend-paying firms are immediately filtered out, and those stocks that remain are next screened for dividend quality and growth: a security must be issued by a company with a non-negative five-year dividend-per-share growth rate and a dividend-to-earnings ratio of 60% or less.  Next, there is an \"outperformance factor\" score which is calculated by dividing the company's net dividend yield by the net dividend yield of an index that measures the performance of companies from the eligible company's country. 30 names with the top scores join the index, with the weighting schema based on the \"net dividend yield,\" plus there is a 15% single-security cap. It is easier for the component to remain in the index than for a newcomer to qualify as: An existing Index component is not removed so long as its score places it within the top 60 of eligible companies. The index is rebalanced and reconstituted only once a year. It is important to understand that the index and, hence, the ETF target stocks not only from the European Union or exclusively those nominated in the euro. Non-EU countries like the UK, Norway, and Switzerland are also eligible. Collectively, these countries accounted for approximately 33.6% of FDD's net assets as of July 3.   Created by the author using data from the ETF Among the EU member states, the Netherlands is the largest allocation, with a 16.6% weight (4 companies). All of the Amsterdam-quoted stocks represented are from the financial sector. FDD performance: years of lackluster returns Incepted in August 2007, FDD has delivered a negative annualized total return of -89 bps.    Metric iShares Core S&P 500 ETF (IVV) FDD iShares MSCI EAFE ETF (EFA) iShares Europe ETF (IEV)   Start Balance $10,000 $10,000 $10,000 $10,000   End Balance $51,536 $8,607 $16,761 $16,315   CAGR 10.23% -0.89% 3.12% 2.95%   Standard Deviation 16.00% 20.95% 18.13% 19.77%   Best Year 32.29% 31.26% 26.95% 29.00%   Worst Year -37.02% -60.49% -41.04% -43.37%   Maximum Drawdown -50.79% -70.27% -57.38% -59.33%   Sharpe Ratio 0.62 0.01 0.2 0.19   Sortino Ratio 0.92 0.02 0.28 0.27   Upside Capture 98.53% 68.81% 82.23% 88.09%   Downside Capture 96.86% 112.95% 110.3% 118.29%   Click to enlarge Data from Portfolio Visualizer. The period is September 2007–June 2024 Looking at FDD's dismal past performance, there is a temptation to explain its results with macro headwinds in general and FX fluctuations in particular. Also, there is a Global Financial Crisis effect in these figures, which was responsible for the lion's share of underperformance (FDD was down by 60.5% in 2008). I would concur that these issues have been the major detractors from FDD's performance since its inception. However, the problem here is that the funds targeting European and developed-world (ex-U.S.) equities did much better than FDD (there are nuances depending on the periods selected). This implies that FX factors did weigh on it, but it was the strategy (i.e., its value factor focus and/or concentration) that was likely the key culprit for underperformance. To corroborate, as the table above shows, IEV eked out an almost 3% total return, while EFA delivered 3.12%. This is nowhere near IVV's 10.23%, but it was still much better than a negative return. Besides, FDD underperformed IEV in 10 out of 16 full calendar years it has in the books. And its recent underperformance streak has lasted since 2019.    Year FDD underperformance vs. IEV   2019 -0.20%   2020 -7.92%   2021 -0.74%   2022 -1.94%   2023 -6.02%   2024 -5.09%   Click to enlarge Calculated using data from Portfolio Visualizer Next, let us strip off the effects of the GFC and add the WisdomTree Europe Quality Dividend Growth Fund ETF (EUDG), which was incepted in May 2014.    Metric IVV FDD EFA IEV EUDG   Start Balance $10,000 $10,000 $10,000 $10,000 $10,000   End Balance $34,113 $12,726 $15,404 $14,881 $16,030   CAGR 12.94% 2.42% 4.38% 4.02% 4.79%   Standard Deviation 15.24% 18.65% 15.14% 16.56% 15.92%   Best Year 31.25% 23.82% 25.10% 24.86% 29.66%   Worst Year -18.16% -16.13% -14.35% -14.66% -18.28%   Maximum Drawdown -23.93% -32.47% -27.58% -28.76% -31.27%   Sharpe Ratio 0.78 0.14 0.26 0.23 0.28   Sortino Ratio 1.22 0.21 0.38 0.34 0.41   Upside Capture 100.4% 66.09% 72.63% 76.62% 75.89%   Downside Capture 96.48% 103.58% 102.39% 110.2% 104.9%   Click to enlarge Data from Portfolio Visualizer. The period is June 2014–June 2024 Alas, its results were again the weakest. We see a lot of volatility, a bleak CAGR, and a deep maximum drawdown. Next, was FDD capable of minimizing losses in 2022? Partly, as it did outperform IVV, EUDG, and the ALPS O'Shares Europe Quality Dividend ETF Shares (OEUR). Yet it trailed IEV and EFA.    ETF 2022 total return   IEV -14.19%   EFA -14.35%   FDD -16.13%   OEUR -18.02%   IVV -18.16%   EUDG -18.28%   Click to enlarge Data from Portfolio Visualizer And this year, it is one of the worst-performing ETFs in the group, as it is ahead of EUDG only. Data by YCharts A closer look at FDD holdings As of July 3, FDD had a portfolio of 30 companies, with its allocation to key five companies being 23.5%. It has exposure to 7 out of 11 GICS sectors, with information technology, health care, real estate, and consumer staples shunned. IEV's sector mix was provided for a better context.   Created by the author using data from the ETFs As I said above, this is a UK-heavy portfolio. FDD's largest position is, unsurprisingly, a UK bank, NatWest Group plc (NWG) (London ticker NWG), which is based in Edinburgh. Despite having solid momentum this year, with an over 51% return delivered in New York, NWG offers a solid 6.95% forward dividend yield. NWG has a 4.85% weight in FDD. HSBC Holdings plc (HSBC) (London ticker HSBA), another heavyweight UK financial sector name, is in second place with a 4.84% weight. HSBC has been much less successful this year, as it has gained only about 9.6% in New York. The forward dividend yield is also weaker than NWG's at 4.6%. ING Groep N.V. (ING) (Amsterdam ticker INGA) is the third largest position, with a 4.81% weight. This Amsterdam-based diversified bank operating across the Netherlands as well as Belgium, Germany, Italy, Romania, and a few other countries has delivered a 19% return this year, and its forward DY is above 9%. Final thoughts FDD leverages a value-centered dividend strategy in a concentrated portfolio of companies taken from the STOXX 600 that were screened for dividend growth and quality. Despite its approach looking promising and a 6.5% dividend yield being hard to resist, its total returns were completely dismal in the past as the combination of the soft performance of the value factor (amplified by the yield-driven weighting schema) together with FX issues, chief among them being the sluggishness of the GBP and EUR, was dragging it down. In this regard, I see little justification for chasing the dividend yield with this vehicle.  Investors might riposte here that FDD is tactically attractive nonetheless, as the combination of the pound sterling and euro might offer an opportunity as the U.S. is heading towards the first interest rate cut since the Fed started tightening in 2022, especially assuming the supportive jobs data presented recently. This is an interesting hypothesis on the surface. The issue here is that FDD is financials-heavy, and for banks, a looser monetary policy means interest income compression, which is clearly not bullish for FDD. However, if the USD significantly weakens against the European currencies, FDD might eke out small gains, so I believe there is no strong bear thesis here either. All things considered, I believe FDD does not deserve a rating above Hold.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.28.3","shortVersion":"4.28.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2449723278"}